A Brief Intro to Trump’s Fiscal Stimulus Plan
Reports have emerged, suggesting that President Donald Trump is planning to implement a $10 trillion budget cut over the next decade. While a huge tax cut would be a prominent feature of Trump’s fiscal stimulus package, increasing spending on defense and infrastructure is also considered a practical option in the report. Now, $10 trillion is the equivalent amount of debt that Obama accumulated in his 8 years of office. So this is not a small sum of money so to speak.
However, scaremongers have said that such a tax cut would cripple vital Federal services and programs. But despite this overdue downsizing, we are of the view that the Federal government would still expand its activities over the course of 10 years. Apparently, this growth wouldn’t happen as quickly as expected if action is not taken now.
The parameters to be considered
The United States is projected to spend $50 trillion in the next decade. But what Trump’s fiscal stimulus is asking for is a cut in the ratio of 1 in every $5 of the projected expenditure.
The second point to consider is that the $10 trillion would be realized through gross spending cuts. During that period of time, Trump also wants to inject $1trillion worth of infrastructure and an equivalent amount dedicated towards defense spending.
Another thing is that this huge tax cut would greatly reduce tax rates for business enterprises and families across America. But this is also expected to slash revenue by some $4 trillion. The other aspect of the fiscal stimulus package is to be concentrated on balancing the state budget – Trump promised this while campaigning.
Still, others are of the opinion that Trump’s fiscal stimulus wouldn’t do that much to the economy. Most liberals base their fiscal policy arguments on the period between 2009 and 2011. They are of the opinion that larger government deficits are good for an economy that was awash in labor and idle capital waiting to be put to some meaningful use. Unfortunately, that was the situation then. This argument would have been valid back then, but not today.
Moreover, even if an additional stimulus package was injected into the economy in a post-2011 era, it does not mean the package would have a significant economic impact, especially in a Trump’s “United States.”
When times change, needs change too
This can be compared to the analogy of casinos in the 90s. This was a period where land-based casinos literally boomed with business. Today, that is not the case considering that the internet is snatching business away from these casinos, and instead enticing players to opt for Euro Palace online casino games that tend to be more convenient and cheaper to play. Euro Palace casino is just a smartphone away while a land-based casino in Las Vegas is miles away.
The American economy has changed with changing times too. Employment is almost to its full capacity while interest rates remained low until a Trump administration was put in place.
The yield of the 10-year Treasury bond was at 1.86% during Trump’s Election Day. However, it rose to 2.33% thereafter.
Since the economy is generally slacking, the introduction of a significant fiscal policy package would actually lead to the repercussions that conservatives warned about in 2009. Among the things that were sighted then included higher state borrowing, high-interest rates, and inflation that would generally lead to crowding out of private sector activities.
What is more, there is a high likelihood that a fiscal stimulus package would end up being offset by the actions of the Federal Reserve. For example, the Fed would be forced to spike interest rates in a bid to keep inflation under check and cool things down.
Of course, a Trump administration would try intervening. But the president himself doesn’t have the full capacity to control the actions of the Federal Reserve. On the other hand, if he succeeded in pressurizing the Federal Reserve against spiking the interest rate, then it means serious inflation would be witnessed. We are quite sure that this wouldn’t sit well with the majority of the retirees who put him forward in the ballot.
Ultimately, we learn from countries like Japan and Venezuela that government spending has never stimulated growth in the economy. When the government doesn’t borrow, spend, or tax its citizens, that dollar amount can be spent by families or invested in business. To cut a long story short, what the President is promising as a fiscal stimulus is something that is aimed at the private economy. Only time will prove these things.
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